CHANGE IN PROFIT DISTRIBUTION FREQUENCY IN THE "LIMITED LIABILITY COMPANIES" LAW

The National Assembly has approved a significant amendment to the frequency of profit distribution in the "Limited Liability Companies" law. Under this revised legislation, profit distribution among company participants can occur no more frequently than once a quarter, as opposed to the previous annual distribution.

Previously, limited liability companies were constrained by a regulation that permitted profit distribution only once a year. This limitation unduly restricted the ability of companies to distribute their earnings among their participants, hindering small and medium-sized enterprises (SMEs) from legally sharing profits with their stakeholders. Consequently, this deterred the establishment of SME LLCs and discouraged investments in them, as distributable profits could not be disbursed to investors in a timely manner.

Recognizing this issue, the SME Council, led by the Deputy Prime Minister and professionally supported by EBRD’s Investment Council of Armenia, identified the problem. In 2023, the Investment Council of Armenia in collaboration with the RA Ministry of Economy, developed a project to amend the profit distribution frequency for LLCs.

As a result, the "Limited Liability Companies" law now specifies that companies have the flexibility to determine the frequency of profit distribution among participants through their charters, but this distribution cannot occur more frequently than once a quarter. This amendment provides companies with the opportunity to distribute their generated profits more regularly, allowing SME entities to share their profits with participants in a lawful manner. This regulation promotes the establishment of SME-focused LLCs and encourages investment in them.

Additionally, the new regulation promotes improved financial record-keeping and internal document management practices among SME entities.

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